9. in war and peace - anu presspress-files.anu.edu.au/downloads/press/p55501/pdf/gp_part9.pdf · 9....

9. In war and peaceOn the economic side in wartime I think the most influential adviserswere … Giblin, Copland, Melville and Brigden – and perhaps RolandWilson.Paul Hasluck1

IntroductionIt had been the Great War that had first brought Giblin’s four together. In 1939a still greater war was to unite them a second time. For the next six years theywere absorbed in shaping Australia’s war effort.

They were at the front of the helter skelter dash to build war industries and tomarshall a workforce to man them. They educated two Treasurers about theneed to consider resourcing the war effort in macroeconomic terms. With theapproach of victory, they articulated similar Keynesian notions to preserve fullemployment in peace. With the global spread of the war, they strived to assurewhat they believed were Australia’s interests in the approaching post-warinternational order. This was a struggle that culminated at San Francisco in 1945in a bitter dispute over the place of the ‘full-employment pledge’ in the UnitedNations Charter (Crisp 1965). 2

Yet it might be said that none of the four had ‘a good war’. Their successes weremingled with frustration and bitter disappointment.

‘Goodwill toward men’‘Fellow Australians. It is my melancholy duty to inform you officially that inconsequence of the persistence by Germany in her invasion of Poland, GreatBritain has declared war upon her and that, as a result, Australia is also at war.’With a formula of words resembling a telegram announcing a death to the nextof kin, Prime Minister Menzies announced the advent of war to Australia. Manylisteners shared Menzies’ spiritlessness. Most elements of Australian politicallife had supported appeasement. Lyons hailed the Munich agreement, and hadeven sought to claim some personal credit for it. John Curtin, as OppositionLeader, congratulated Lyons on his stance. Highly contrary hues in the Australianideological kaleidoscope concurred on the merit of appeasement, includingEggleston, The Bulletin, and the Catholic hierarchy. 3

1 Hasluck 1997, p. 55.2 The economic dimension of the Australian war effort has been extensively investigated by Walker

(1947), Hasluck (1952), Butlin (1955), Butlin and Schedvin (1977), Watts (1983) and Ross (1995).3 H. C. Coombs has recorded in his memoirs that he was a ‘pacifist’ even after the outbreak of war

in 1939. Giblin and Copland cannot be described as pacifists. Copland caused indignation by urging

175

In sympathy with this outlook, Giblin shared the widespread disquiet aboutany policy that increased, rather than reduced, the probability of war. Giblinbelieved, with Copland and many others, that the Treaty of Versailles had beenunjust and inexpedient, and any war for the treaty would be unjust andinexpedient. 4

On 16 April 1937, Giblin, Copland and four other members of the University ofMelbourne, issued a manifesto: Australia’s policy – peace or war. It was effectivelyaddressed to Lyons:

20 years ago we crushed German imperialism, though it was touch andago, and now Germany seems as strong as ever again. The job costAustralia 60,000 men killed, thousands impaired in health, and down tothe present 470m pounds in money while we still owe 280m in war debts.Today aggressive imperialism has three heads – German, Italian,Japan[ese]. To scotch them for another generation is not likely to costless than it did the last time, even if we succeed. Must we all go throughit again in a few years time? Although the League seems at presentdiscredited, war is even more discredited. The British Empire could cutthe ground from beneath the feet of the dictators by offering to takesteps to remove grievances.

Prominent ‘steps’ the Empire should take included reducing trade preferenceand a stricter internationalisation of League of Nations mandates. ‘Both of theseoffers would be contingent upon fascist countries coming back into the League,and supporting collective security’. 5 This was the standard Chamberlain outlook,and in hindsight seems hopelessly thin.

With the advent of the Munich agreement of 1938, Giblin’s position divergedfrom that of both appeasers and anti-appeasers. His key judgement was thatGermany was strong and Britain was weak. And because of this strength, a warof any kind with Hitler would be ‘madness’. 6 And because of this strength,German domination of the European continent was unstoppable – war or no.Giblin suggested that the most rational course of conduct for Britain was to ‘cease

military training to be compulsory for Melbourne University undergraduates. Predictably, Giblin’s

interest focused on military training for schoolboys.4 Like many war veterans, Giblin had a less negative opinion of Germans than civilians. At the close

of the First World War he had affirmed in a soldiers’ debate that Germans should be allowed to

migrate to Australia. And while in 1933 he declared that ‘Germany has cut herself from civilisation’

(Giblin 1933), in 1937 he told James William Barrett (the Chancellor of Melbourne University), that,

although Nazi methods were ‘distasteful’, ‘one cannot quarrel with their aims’ (4 May 1937, quoted

in Roe 1984, p. 83).5 Specific reference is made to the Australian ‘Mandate’ of former German New Guinea.6 Why? Because success was uncertain and ‘years of attrition’ inevitable.

176 Giblin's Platoon

to be a European power’, and ‘play for an American alliance to keep freedom ofthe seas’. Such a withdrawal to the Channel would constitute an equilibrium:‘an armed peace for a generation or so, which would give time for reason to beborn again in Central Europe, with help perhaps by cautious and indirectevangelisation from the outside’ (UMA LFG 24 October 1938). Giblin, therefore,was putting his hopes in a cold war: an Anglo-American alliance that wouldwithstand a continental menace, but with fascism rather than communism asthe adversary, and with the Channel rather than the Elbe as the frontier. Europe’sultimate salvation would rest on a slow ideological conversion (‘evangelisation’).

Unlike the Munich signatories, no part of Giblin’s analysis assumed the orderlyconduct of Hitler. Giblin did not believe that Hitler had been cajoled, howeverreluctantly, into concert with other European ‘great powers’. Hitler’s letter of28 September 1938, Giblin remarked, ‘takes the mask off too completely’. It was‘seething with scarcely concealed contempt’. Did Chamberlain ‘really think thatin a year – or 18 months – England will be in a position to call the tune?’ Thusboth Giblin and the anti-appeasers agreed that Hitler would use his power justas he pleased. But their analyses drew different inferences. The necessity of warwas inferred by Churchill’s analysis, and the necessity of avoiding war byGiblin’s. Churchill’s policy was the nobler. In the upshot, it was also moreexpedient. Yet that expedience turned upon the totally unexpected collapse ofthe Western Front in 1940, and the consequent avoidance of the ‘years ofattrition’ upon which Giblin premised his argument. Giblin had been trippedup by being insufficiently pessimistic about British inferiority. The calculus ofevents had proved inscrutable, even to that subtle reader of wind-scatteredleaves.

The reveilleWhen war came all four were rapidly summoned.

Brigden was quickly made the Economic Adviser to the new Department ofSupply and Development that had just replaced the old Munitions Supply Board.On 1 January 1940 he became its Secretary. 7 Copland also became an adviserto government at the outset of the war. Appointed Commonwealth PricesCommissioner in 1939, he was appointed Economic Consultant to the PrimeMinister in 1941, and held both positions until the end of the war.

Menzies had intended to appoint Wilson as his economic adviser for the durationof the war. But Wilson had been successfully arguing for the establishment of

7 Brigden was from 1 December 1939, Acting Secretary of the Department of Supply and

Development; from 1 January 1940, Secretary, Department of Supply and Development; from

8 August 1940, Secretary, Department of Munitions; and from 1 July 1941 Secretary of the Department

of Aircraft Production.

In war and peace 177

a Department of Labour and National Service, and on a train journey from Sydneyto Canberra, Harold Holt, the designated minister for the new department, offeredWilson the position of Secretary. In October 1940 Wilson was appointed (Cornish2002, p. 23).

At Wilson’s urging, Giblin was brought to Canberra at the age of sixty-six tobe Chairman of the Financial and Economic Committee (F&E), a committeeformally constituted as part of Treasury in September 1939. 8 It was composedof Wilson, Melville and Giblin, with Copland, Brigden and Coombs recruitedlater. 9 In Wilson’s vision this committee would ‘constitute a small centralthinking committee’, with ‘its services … available to Cabinet or to any otherdepartment’. The research was done by Wilson, Brigden, Melville, and Coombs;Copland was the conduit to the Prime Minister; and Giblin, ‘the one full-timemember [who] appears to have served as a one man synthesiser’ (Maddock andPenny 1983, p. 31).

The bivouacWilson and Brigden left Canberra for Melbourne, where Manpower and Industrywould be directed. And, in the opposite direction, Giblin and Copland leftMelbourne for Canberra. The two shared digs in the capital, and Giblin reportedto Eilean this arrangement was ‘going well’, despite his vexation at ‘Germanmusic’ being banned from the ABC. In June 1940 after reading some ‘verydepressing’ cables from Bruce about the war in France, and presumably feelinghis opportunities for leave from Canberra had suddenly diminished, Giblinbeckoned Eilean to leave Melbourne for the capital. The hunt for quarters suitablefor a couple began; Giblin discussed the possibility of using the Brigden’s house,which was being rented to the United States ‘legation’.

The Giblins settled down to the eccentric austerity of wartime Canberra: of meatand butter ‘usually unobtainable’; bacon ‘unprocurable’; the milk almost bluishin winter; wood hard to get (when seven tonnes might be needed each winter),and mysteriously sudden evaporations of particular commodities – bootlacesone month, envelopes another. But Giblin, of course, enjoyed the physicaldemands of this life. His letters record with satisfaction his 10 pullets providingeggs; the 130 lb of pumpkin he harvested; and the strawberry patch that yielded

8 It was Wilson who had recommended initially that such a committee be established for the purpose

of advising the government on the implications of possible blockades of shipping to and from

Australia in the event of a war with Japan.9 At about this time Giblin described Coombs as ‘a good fellow, solid, no frills, no disturbing ego,

very reasonable, though there is ground where I – Wilson also – cannot follow him’. He told Keynes:

‘do not take him too seriously’ (KCLA LFG 14 May 1943, L/A/75).


strawberries so ample that their consumption would ‘require the help ofneighbours’.

Each day Giblin, in ‘a thick tweed suit, … a badgeless digger hat; the same redtie, the clog like boots, large pipe … and the huge bushman’s pack’ (Reynoldsc. 1951) would make his way to the small room on the top floor of ExternalAffairs and Treasury. In this ‘sunny corner of the top floor of West Block,Canberra, … he crouched over his pipe among a litter of papers, [and provided]not only a cell of economic thought but a place where many departmental andinter-departmental tangles were unwound by honest and straightforwardcommonsense (Hasluck 1952, p. 452). Hasluck later recalled it was a ‘privilege’to work ‘close to this great Australian, sagacious, humorous, kindly to persons,devastating to humbug (Hasluck 1980, p. 64). Giblin, said Hasluck, ‘had asanifying influence. He showed us the things we had to think about and helpedkeep the thinking straight. His personality had the effect of sand paper, roughbut polishing others’ (Hasluck 1954, p. 138).

Churning butter into gunsIn Melbourne, Brigden was facing the most urgent problem of the war effort:the arming of Australia’s military forces. This could not be done by relying onthe arms industries of a larger nation. A heavy armaments industry would haveto be created from scratch. In this task Brigden was, from the beginning of 1940,the senior public servant, being appointed the Secretary of the Department ofMunitions, and later Secretary of the Department of Aircraft Production.

This was an arduous undertaking, with as many deep frustrations as rewards.The fundamental difficulty was Australia’s state of industrial underdevelopment.Manufacturing output had doubled in real terms over the preceding 20 years(Butlin 1985), but manufactures were still dominated by food, clothing andfurniture, and unprocessed or semi-processed products (such as steel). As of1939, Australia had barely produced an aeroplane. She produced no aluminium,extracted no petroleum, and possessed no tankers to ship it. Cotton wool wasimported. Newsprint was not produced, and even cardboard could not be madein the absence of certain imported ingredients. ‘Nearly all’ machine tools andfactory plant were imported (Ross 1995).


Figure 9.1. Brigden (left), as Secretary of Munitions sharing a platform withR. G. Menzies


There were also more human difficulties. Australia was distant from technologicalexpertise. Brigden later recalled: ‘Frequently there were no blue-prints. Criticalparts were explained by crude picturegram’. 10 The factors of production didnot always cooperate: one small arms factory was halted for three weeks whilethree unions fought a demarcation dispute over a single person. Brigden alsolamented how the employment of women as factory hands was delayed by men:

Traditional trade union objections delayed the employment of womenelsewhere in Munitions, except as laboratory workers etc, and in asomewhat furtive small way in factories. Yet it had been proved that agauge lasted at least twice as long in the hands of a women worker as inthe hands of a new male worker. (Brigden 1942).

Away from the factory floor, the gathering of sufficient and appropriate personnelfor the Department of Munitions was a struggle. The Department grew from 14persons at the opening of the war to 6259 at its peak in August 1943. Brigdencould draw on the formidable capabilities of his deputy, J. K. Jensen. But ingeneral the quality of the existing public service was weak. This necessitatedrecruiting over 90 per cent of staff from outside the ranks of experienced publicservants, which itself produced some difficulties. Essington Lewis of BHP hadbeen made ‘Director-General for Munitions’ by Menzies in June 1941, andendowed with great powers. But as Brigden commented: ‘The man from businessfinds that public opinion will not allow him to behave in a businesslike way’.

Personnel difficulties extended to the executive. Menzies did not make a zestfulcommander. He styled himself Minister for Munitions, but seemed not to relishplaying the warlord. He had told Bruce at the outbreak of war: ‘Those who thinkabout it, all feel sick about it – and those who don’t want to feel sick, don’t thinkabout it’ (DFATHP RGM 11 September 1939).

Months passed into years, but the art of fashioning swords from ploughsharesremained stubbornly elusive. By November 1940 Australia was in possession ofonly 42 ‘modern’ planes; all of them, in fact, obsolete. The project to manufactureBeauforts – that ultimately yielded in the last years of the war 365 Beaufighters– was, said Brigden, ‘ill fated from the start’. By April 1941 Australia stillpossessed no naval mines. By May 1941 only 10 (light) tanks were available (Day2003).

In a world at war, Australia’s effort to arm herself seemed insufficient. AsMenzies’ Government did not command a majority in parliament, it wasvulnerable to opposition assault on this matter. One avenue for the attack was

10 Picturegram = fax. Since 1934 Siemens-Karolus equipment installed in Melbourne had supplied

faxes from London. But this service was discontinued in 1942 because of the difficulty of obtaining

(German) spare parts.


the role Menzies had given prominent businessmen in the direction of thearmament program. On 5 June 1941 Norman Makin, the Labor member forHindmarsh in South Australia, attacked the role of industrialists, such asEssington Lewis. In August 1941 H. V. Evatt and J. A. Beasley made ‘scathingattacks’. ‘Both suggested that Lewis was sacrificing his country’s needs for hiscompany’s profits’ (Blainey 1971).

But there was another avenue for attack: Brigden was the onetime advocate ofthe reviled National Insurance scheme, and still malodorous to some Labormembers on account of his support for the Premiers’ Plan. On 5 June 1941 Curtinattacked Brigden’s appointment as Secretary to the Department of Munitions.On the following day, Curtin’s deputy Frank Forde proposed that Brigden betransferred to the position of Director of Economic Co-ordination, ‘a fantasticassignment’ created early in the war, and abolished as soon as Labor acceded tooffice in October 1941 (NAA Advisory War Council Minute, 6 June 1941).

When Labor did obtain the government benches, Brigden’s position as Secretaryof the Department of Munitions was highly vulnerable. Copland was emphaticin pressing on the new government the progress that had been made inarmaments:

In October 1941 the Economic Adviser to the new Curtin Government,Professor D. B. Copland, reported that the speed with which warindustries had reached mass production stage had amazed even theexperts introduced from overseas to supervise operations. At the outbreakof war, he said, Australia possessed only 1 manufacturer of lathes, twopower presses, and one government machine factory. By late 1941Australia was practically self-sufficient and over 30 firms weremanufacturing machine tools. Munitions production had leapt 18 timesin value. For every man at a bench or lathe in 1939, there were at least20 by October 1941. (Page 1963, p. 294). 11

Copland’s ebullience should not be dismissed as self-justification, or simply asaid for a friend in need. Since 1990 a ‘revisionist history’ of the war effort hasemerged that paints a far more positive picture of Australian re-armament thanearlier analysts had accepted (Ross 1995). But, however justified Copland’s casemay have been, his evidence was tainted. Several branches of the ALP passedmotions demanding Copland’s removal from government service. The futureLabor leader Arthur Calwell rose in the House of Representatives to ask if theCopland who was advising Prime Minister Curtin was the one and the sameCopland who had in 1931 recommended a 10 per cent cut in wages? 12

11 Brigden noted with pride the export of machine tools to the United States. Optics, too, were

an achievement.12 Copland had known the family of Elsie Curtin since his leadership of the WEA in Tasmania.


How to pay for the warLying beneath the ‘micro’ problems of armaments were the more macroeconomicproblems of maximising total available resources. In this, the four were significantin introducing a ‘national accounting’ mentality, and a Keynesian approach togovernment budgets.

Deficits or doles?The four’s influence relied in large measure on the open-mindedness of theminister responsible for national economic management, Percy Spender, the newbreeze in the listless United Australia Party. He had entered parliament in 1937by defeating the UAP minister for defence. He was quickly recruited into thegovernment, made Assistant Treasurer in April 1939, Acting Treasurer inNovember 1939, and Treasurer in March 1940. In 1943 he was to stand forleadership of the UAP, and lose by a single vote.

Spender was all energy and new ideas, and was a good foil for Giblin’sproselytising of novel Keynesian precepts. There was sometimes tension betweenthe two. On one occasion Giblin told Eilean:

The trouble is that Spender has no idea of the work involved and willnot make or get decisions on essential points of policy. So there iscontinual recasting of the Financial Statement, and everyone is slavingto make it a decent document – which it can’t be at the moment – or atleast reduce the indecencies and crudeness of it. (NLA LFG 30 April1940). 13

But Spender was a ready pupil of Giblin. 14

The first lesson involved the appropriate stance of government spending andtaxation in the face of unemployment.

Unemployment had remained significant throughout the 1930s. In the Septemberquarter 1939, unemployment of unionists was measured at 10.3 per cent. 15

Shortly after the outbreak of war Giblin drew Spender’s attention to currentlevels of unemployment, asserting that unemployment ‘threatens to becomequickly an acute embarrassment to the government’ (17 October 1939). Theoutbreak of war, he said, had sent a psychological shockwave through thebusiness community, and consumers had stopped spending. 16

13 Giblin adds, ‘Mac [Secretary to the Treasury S.G. MacFarlane] is in the depths of despair.’14 Spender acknowledges Giblin’s role in his memoirs.15 In 1940 unemployment of unionists averaged at 8.6 per cent. By the last stages of the war this

was to drop to 1.0 per cent.16 LFG to PS, 17 October 1939, NAA571/1/39/3799.


The government, said Giblin, had compounded the unemployment problem byexcessive timidity in defence spending. ‘The difficulty’, Giblin argued, ‘canonly be met by more rapid spending – not planning, or commitments or raisingloans, but spending; and spending for employment as much as and more thanfor defence’.

In his notes for the supplementary Budget speech of November 1939, Giblinasserted that: ‘This is not the time to provide against the possibility of a deficiteither by reduction of expenditure or by new taxation. For the next few months,the unemployment situation will be critical. Reduction of expenditure or increasesof taxation would further depress unemployment. This is a proper occasion fordeficit financing … The same reason holds against any present increase intaxation to meet war expenditure’ 17

Treasury, however, was implacably opposed to any further increase inCommonwealth spending. But Spender refused to endorse the view of his owndepartment. In this spirit of dissent, Spender put to Cabinet (13 November 1939)that ‘no measures should be imposed now which would obviously have theeffect of increasing unemployment’; any further ‘increases in direct taxation atthis juncture would cause uneasiness and tend to reduce employment’. ‘Anintegral part of this policy is to avoid any increase in taxation likely to depressprivate enterprise.’ 18

Giblin’s concern about aggregate demand was underpinned by a vision thatefficient conduct of the war effort required looking at the economy as a whole.The key insight here was that, in an economy seeking to maximise war material,unemployment was as wasteful as consumption. Spender took this point readily.Thus, in response to Giblin, Spender wrote to Menzies on 25 October sayingthat the ‘the view of our economic advisers’ is that ‘maintenance of employment… is of paramount importance in lessening the burden imposed by war. In short,the burden is the diversion of human labour to war purposes, which can onlybe lessened, apart from reducing expenditure, by increasing the national income,which in turn can … be accomplished by bringing into productive employmentpeople not presently engaged therein.’ And Spender went on: ‘One of theobjectives of our present policy is to restore and increase the national income.This will enable us to divert resources to defence without encroachingunnecessarily on existing standards of consumption.’ 19 He was convinced that‘Giblin’s suggestion means a sound national approach to our national problem,

17 NAA 571/1/39/4105, ‘Prof Giblin’s Notes’, October–November 1939.18 NAA PS 13 November 1939, ‘Revision of Budget, 1939–40’, 184/8/Bundle 1.19 NAA PS to RGM 25October 1939, 571/1/39/3799.


which I need hardly say would be of tremendous political value to ourselves’.20

A third lesson was the outlook on the government budget. The F&E put to himthat the budget should be regarded not only as a device to manage thegovernment’s own incomes and outlays, but also as a part of an algorithm thatassisted the government to manage aggregate demand in the economy as whole.

In his memoirs Spender found fault with the first Menzies war budget for notrecognising this:

The Budget of September 1939 was, in effect, just another traditionalbudget that did not vary from the peacetime pattern. There was nothing… to indicate a financial policy geared to war, or any statement ofprinciple or planning as to how the economy of the nation was to beorganised for war. (Spender 1972, p. 43).

In contrast, Spender’s supplementary Budget brought down in 30 November1939 was built around Giblin’s approach to war finance. Spender argued that:

In view of the … uncertainty resulting from the outbreak of war andthe recent decline in employment, the Government is of the opinion thatto increase taxation at the present time would merely delay the recoveryof our economy, retard the full utilization of employable labour, reducethe potential of our national income, and consequently interfere withthe full prosecution of our war programme. It has been decided, therefore,not to increase further the burden of taxation for defence purposes inthis financial year. 21 (Butlin 1955, p. 200).

If there ever was a ‘Keynesian Revolution’ in Australian economic policy, it maybe argued that it arrived at this time and in this way: in 1939, and from Giblin,through the F&E, to Spender.

Reflation or inflation?A second difference between orthodox finance and the F&E came over theprudence or imprudence of funding some war requirements from central bank

20 To strengthen the Treasury’s economic expertise, Spender endorsed the suggestion, put to him

by Wilson, that Coombs should be seconded from the Commonwealth Bank in Sydney, where he

was Assistant Economist, to become Economist at the Treasury.21 Spender’s supplementary budget of November 1939 reflected in large measure the approach

that had been adopted by the F&E. Unemployment remained at unacceptable levels and therefore

it was possible, the Acting Treasurer declared in the budget speech, to fund some of the increased

war expenditure from loans borrowed from the banking system, including borrowing from the

central bank. Defence borrowing was raised from £19m to £46m, and the reliance on tax revenue

was reduced from £6m to £2m.


borrowing (that is, ‘printing money’). The Commonwealth Treasury had resolvedin its own mind that war expenditure should be financed from taxation andloans from the public. Borrowing from the banking system, especially from thecentral bank, was to be avoided like hellfire. That expedient had been over-usedin Australia – and elsewhere – during the First World War, and had led toinflation or even hyper-inflation, exchange rate depreciation, and economicturbulence.

But whereas the Treasury dismissed such borrowing as unsound, the economistswere more ambivalent. Giblin, as chairman of the F&E, helped to forge a commonview among economists: as long as resources – particularly labour – were notbeing used at full capacity, it was legitimate to ‘borrow’ from the CommonwealthBank. As Giblin told the Secretary to the Treasury, S. G. MacFarlane: ‘centralbank credit should be injected in times of depression and withdrawn in timesof prosperity and the net result should be zero’. 22

Not long before the outbreak of war, at the invitation of the then Treasurer R.G. Casey, both Wilson and Brigden had prepared notes on the efficacy ofborrowing from the central bank.

Wilson had argued that ‘if the economic system is not working to full capacity’,‘there is in general a good case for finding money for reproductive works. Theremay even be a good case for finding money for works which are not reproductivein the financial sense of returning full interest to the Treasuries, but which arereproductive in the wider economic sense.’ He declared, moreover, that it ‘maywell be that this money should come from an expansion of central bank credit…’. It was true that foreign reserves might be depleted in the process; thatprivate enterprise might be adversely affected if interest rates were to rise; andthat appropriate labour skills might not be available from among the unemployed.But when ‘incomes have fallen and unemployment is increasing’, he concludedthat ‘an increase in public spending, assisted by central bank credit, is probablydesirable to stimulate activity’. 23

Brigden, vigilant as ever in the face of the siren call of inflation, was more warythan either Wilson or Giblin. He did acknowledge that ‘present opinion tends… to support the use of central bank credit as a substitute for taxation or as a

22 Giblin’s views may be contrasted with those of the Treasury, which early in 1939 had drafted

speech notes for Casey on the subject of war finance. The notes referred to recent suggestions that

‘defence should be financed by some form or other of national credit’. The effect of that, the Treasury

asserted, would be ‘to destroy confidence in the existing currency. The currency would depreciate,

costs of living would rise and all titles to money – including Savings Bank Deposits [italics in the

original] would become less valuable. In fact, their value might even go the way of other countries

and become almost negative.’23 NAA RW to RGC November 1938, ‘Finance and monetary policy’, 1968/391/140.


means of increasing employment or the national income or both’. But this opinion,he said, had been influenced by the writings of Keynes, and had been based onthe assumption that wages would not increase when there was unemployment.Yet in Australia, according to Brigden, ‘each degree of increase toward fullemployment is accompanied by increases in wage rates and … labour costs’. Ifcentral bank lending was resorted to, controls over foreign exchange, investmentand labour would be required: ‘control must follow as the Government underpublic pressure, seeks to avoid the adverse consequences of its action’. 24

As for Giblin, since unemployment existed, he believed it was quite legitimatefor central bank credit to be used ‘to set working all the unused resources oflabour in the country’. ‘In general an excessive issue is necessary as a first stepfollowed by a corrective withdrawal of the excess’. 25

But Giblin foresaw an inflationary pressure. In his notes for the November 1939supplementary Budget, he wrote that: ‘The policy proposed is to use the stimulusof central bank credit to finance the initial period. So far the procedure may becalled reflation. If this method were to be continued we should have inflationbeginning gently but accelerating to a dangerous rapidity’. As a consequence,‘After the initial period then, say from next May, the war should be financedjointly by taxation and current savings, invested in loans on the market. Onlyby adhering to this principle of finance can inflation be controlled’. 26

The end of Giblin’s ‘initial period’ might be said to be signalled by Coombs’ F&Epaper of 7 December 1940 headed: ‘The banking system and war finance’. Thebanks were now in a highly liquid position and were seeking investmentopportunities to maintain their profits. Coombs was fearful that thesecircumstances might spark a ‘dangerous inflationary process’. He proposed thatthe banks’ advance policy and their liquid assets should be subjected to tightercontrol. Two alternatives were proposed: a system of minimum variable liquidityratios, or a uniform minimum ratio that would be sufficient to control the mostliquid of the banks, bringing the other banks up to that level by exchangingliquid assets for government securities. Wilson suggested, however, that thetime might be right for the introduction of what he called the ‘100% moneyplan’, by which he meant that all increases in bank assets from a particular dateshould be lodged with the Commonwealth Bank. Later, Wilson’s plan was

24 NAA JBB to MacFarlane, 1 June 1939 ‘Central bank credit and employment’, 1968/391/138.25 NAA LFG 26 October 1939, ‘War finance’, 1968/391/139.26 NAA LFG n/d but October–November 1939, CP 13/1/C File X111 ‘War finance: Preface’. Also,

NAA LFG to PS 17 October 1939, 571/1/39/3799.


adopted by the Curtin Government as a central device to restrain the impact ofexcessive monetary expansion. 27

These ideas were aired with increasing alarm by the F&E at its meeting inDecember 1940, but already by April 1940 it began to advise the governmentthat reliance on bank credit would soon have to end, and, in consequence,taxation would have to be raised. It was aware that taxation on low incomeswould be politically difficult. 28 In response, Spender acknowledged that, withrespect to bank credit, ‘This possibility is now largely closed. We must in thefuture rely almost entirely on taxation and public loans’. 29

By March 1941 the matter had become more urgent. It was in this context thatGiblin raised the political difficulties of dispensing with credit expansion. ‘Withresources fully used’, he said, ‘there can be no case for further credit expansionin 1941–42 but rather for contraction. Nevertheless it may be politicallyimpossible to finance a growing war expenditure by market loans and taxation,so that immediate recourse to credit expansion may be forced on the government.’30 Drawing upon the ideas of Coombs, Melville and Wilson, Giblin then putthree alternatives to the F&E:

first to borrow from the Commonwealth Bank, but to limit the secondaryexpansion of credit by controlling the advance policies of the banksthrough minimum liquidity ratios;

second, to borrow from the banks, but limit their profits;

and third, to induce the banks to transfer their deposits to the Treasury,or to the Commonwealth Bank acting on behalf of the Treasury 31 .

Copland, however, was inclined to seek voluntary cooperation from the banks.But the problem here seemed to be that the banks would define ‘cooperation’in different ways, and would be unlikely to accept the Commonwealth Bank’sdefinition. 32

Since the F&E was unable to agree, it decided to seek political direction, especiallyon how bank profits might be controlled.

27 NAA HCC 7 December 1940, CP 5/1/Bundle XVII, File CCLXIII, ‘The banking system and war

finance’.28 NAA PS Submission to the Cabinet, 27 March 1940, 184/8/1/Bundle 129 NAA PS 27 March 1940, ‘Submission to Cabinet’, 184/8/1/Bundle 1. NAA PS to Macfarlane, April

1940 CP 184/1/1/ Bundle 1. NAA 4 July 1940 PS to LFG, CP 5/1/ Bundle XV11, File CCLX111.30 NAA LFG c. March 1941, ‘Inflationary loans’, CP 5/1/Bundle XV11, File CCLX11.31 NAA CP 5/1/Bundle XVII, File CCLXII.32 NAA, ‘Inflationary loans’, CP 5/1/Bundle XV11, File CCLX111.


Taxes or ‘contributions’?The new Keynesian approach did not mean unconditional deficits and low taxes.With the end of unemployment and the inexorable rise in war expenditure, theconvenient policy of low taxation became more doubtful. Not because it meantdeficits, but because it meant an excess of demand over supply.

The F&E became increasingly preoccupied with calculating the gap betweenexpected war expenditure in the months ahead and the resources required tomeet the increased demands from taxation and loans. The use of the so-called‘gap’ methodology was initiated by Giblin, drawing on the terminology andmethod of Keynes in How to pay for the war (Keynes 1939, 1940). He correspondedfrequently with Keynes throughout the war on aspects of war finance, includingthe principles underlying the gap approach. In its simple form, and abstractingfrom external flows of income and expenditure, the ‘gap’ methodology wascommonly expressed as follows: from expected war expenditure, deduct currenttaxation receipts and loan revenues. The residual was the measure of the ‘gap’which would have to be funded either by new taxation, new loans, or borrowingsfrom the banking system (including the central bank), or by some combinationof these three sources.

There were, in effect, four policy choices that faced the government.

One was simply to allow inflation. This would transfer resources fromconsumption to war-related activities, since wages lagged behind price increasesand taxes on profits and progressive rates of income tax would divert incomefrom employers to the government.

A second was rationing and price control. But the F&E hesitated to recommenddirect controls, particularly rationing. 33 Several members of the F&E did,however, think rationing was inevitable. Certainly, Copland was sanguine aboutthe efficacy and practicality of controls. Although he still took the view that thebest way to drain purchasing power from the community was through taxation,he was far from confident that the rate of taxation necessary to maintain the wareffort and ward off inflation would be politically acceptable. Hence he lent hissupport to a limited scheme of rationing covering a restricted range of goods. 34

33 At the outbreak of war Giblin said it ‘should be a matter of general policy to go slow with wartime

controls which check and frighten business. The control of exchange, investment, imports, exports

and prices should all be brought in gently. The fascination of safeguarding the future must be

restrained by the issues of the present’ (NAA LFG to PS 17 October 1939, 571/1/39/3799).34 By the time it met at the end of August 1941, the F&E had moved some distance toward Copland’s

position, concluding that: ‘If new taxation … cannot be obtained, then … the only way to avoid an

excessive rise in prices is to impose restrictive measures sufficient to ensure that the required amount

of savings is made’. In fact, it concluded that, even if its recommended tax increases (including the


The third device was borrowing from the private sector. But there were limitsto which individuals and institutions would respond to war loans without theincentive of higher interest rates.

The fourth device – and that preferred by Giblin and the F&E as a whole – wastaxation. Keynes had proposed a useful variant of this device: that orthodoxtaxes be supplemented by what he initially called ‘deferred pay’, and later‘post-war credits’. Here a certain proportion of revenue levied from taxation –or from a compulsory loan – would be earmarked for repayment to taxpayersafter the war. Keynes was concerned that steep rates of taxation might createdisincentives to work, whereas a system of deferred pay would not, since therevenue would be returned later to those from whom it had been collected.Moreover, it could be repaid after the war, when it was expected that a slumpwould occur after an immediate post-war boom; tax refunds in thesecircumstances would provide a boost to effective demand when they were spentupon goods and services.

As early as its meeting on 16 December 1939, the F&E had discussed for the firsttime the possibility of introducing a system of compulsory loans (‘post-warcredits’) along the lines of the scheme proposed by Keynes. The committeeconcluded, however, the compulsory loans scheme should be kept in reserve.35

By July 1940, and with war expenditure accelerating rapidly, the F&E wasadamant that taxation would have to rise, and that meant taxing lower-incomegroups, in spite of critics arguing that there remained considerable spare capacity,and so excessive taxation could be avoided. The F&E proposed that thegovernment consider imposing a consumption tax at the point of retail sales of1d on every shilling spent. It was Wilson who suggested this idea, allowing forthe possible exemption of bread and milk.

It was at this point that Giblin raised once more the idea of the compulsory loanscheme, but now in the context of a national program of uniform taxation. TheCommonwealth should levy a uniform national income tax, he argued, and thedifference between the levy and income taxes already imposed by theCommonwealth and the states should be collected as a compulsory loan. Thecompulsory loan component would be greater for taxpayers in wealthier,low-taxing states, such as Victoria and New South Wales, than in other states.

National Contribution) were introduced, and the amount of loan revenues it was suggesting was

secured, ‘it might still be necessary to impose certain real restrictions’. Even so, the committee felt

that ‘the more the rationing method was considered the more desirable appeared the alternative of

taxation, and suggested that, in presenting the problem to Cabinet, the difficulties of rationing be

strongly emphasised’ (AWM August 1941, SJB/118, 29/30).35 NAA 16 December 1939, M 70/117.


Not only would this bring in additional revenue, but it would help to make thesharing of the cost of the war more equitable across the states. 36 By October1940, Giblin had further refined his proposal for a uniform income tax via acompulsory loan. The Commonwealth would introduce a uniform income taxon personal and company income, and from the amount assessed, income taxpayable to the states would be deducted on the basis of existing state incometax. The residual would constitute federal tax. Of the residual, a part would betaken in the form of current or future federal income tax; the surplus would beregarded as a compulsory loan. The amount taken as a compulsory loan wouldbe relatively small in high-taxing states, and relatively large in low-taxing states.37

The Treasurer, now Arthur Fadden, was said to have been impressed withGiblin’s scheme but considered that it was too late to be introduced in the 1940/41financial year. 38

Therefore, the F&E was left with the problem of how to raise taxation uponlower incomes without creating political difficulties. It was clear that themagnitude of the resources needed for the war effort could not be realised simplyby taxing upper and middle incomes; it would have to reach down to lowerincomes. But the Labor Party and its trade union affiliates were opposed to anysuch attempt. The decision to introduce child endowment, suggested initiallyby Dick Downing, who worked for Copland in the Office of the EconomicConsultant to the Prime Minister, and supported strongly by Wilson, wasintended in part to dampen criticism from low-income groups.

Giblin’s contribution to the impasse was to draft a major paper, ‘Prospects for1941–42’, in which he suggested how ‘the political opposition’ to expandingtaxation ‘could be overcome’. He suggested, as a bargaining strategy, evenheavier taxation on high incomes; a 90 per cent excess profits tax; and a levyon wealth of perhaps 3½ per cent. The committee gave its tentative approvalto each of these recommendations, going further on excess profits tax (to 100per cent), and less on the wealth tax (no more than two per cent a year). 39

Shortly after submitting his paper to the F&E, Giblin wrote to Fadden sayingthat the ‘key to the financial situation is taxation. With taxation equitablydistributed over all incomes, there is a fair chance of avoiding any drasticall-round rationing control.’ He acknowledged that, while there was likely to

36 In a note to the Treasurer, Giblin said that the committee favoured the uniform income tax idea

on equity grounds, but recognised that it would be difficult politically, and therefore it might not

be possible to implement (NAA LFG 30 June 1941, ‘Taxation and post-war credits’, CP 184/5/23[2]).37 NAA LFG 7 October 1940, ‘War finance at 5.10.40’, CP 5/1/Bundle XV11, File CCLX111.38 NAA AWF to Cabinet, ‘Can prices be controlled?’, CP 184/8/13.139 AWM LFG 18 and 19 February 1941, ‘Prospects for 1941/42’, SJB 117.


be some immediate hostility from low-income groups to any proposal forincreased taxation, he did not believe that it would prove to be very deep. ‘Itcould give way’, he said, ‘to a good statement of the case for taxation, addressedto them by their leaders. But it must be their leaders who do the job.’ He addedthat ‘it is largely regarded as good Labor policy to resist’. Giblin proposed thatLabor’s representatives on the Advisory War Council be counselled. 40

There was a drift back in interest to a compulsory loan. In June 1941, Giblinprepared a detailed paper on a system of post-war credits. What Giblin nowproposed was a ‘National Contribution’, from which Commonwealth and stateincome taxes would be deducted, leaving a special war contribution in the formof a compulsory loan, for which a post-war credit would be given. 41

It was clear that by July 1941 a crisis in war finance had been reached. Faddenwrote to Menzies on 1 July 1941 saying that ‘we face the biggest budget problemin the history of the Commonwealth’. 42

In the Budget of September 1941 the government proposed a borrowingrequirement of £122m, compared with £60m the previous year. It wasacknowledged that borrowing of this magnitude would be difficult to achieve.In the budget Fadden announced the government’s intention to introduce acompulsory loan scheme along similar lines to that proposed by Giblin (andsimilar to the one that Keynes had proposed in the United Kingdom). A ‘NationalContribution’ was to be assessed on every income earned in Australia (exemptingincomes below £100); after the deduction of state and Commonwealth incometaxes, the remainder was to be collected as a compulsory loan (or as post-warcredits), which would attract an interest rate of two per cent a year, to be repaidafter the war. 43

In the Budget of September 1941 the influence of Giblin and the F&E committeehad reached its high watermark.

Labor opposed the budget, largely because of the National Contribution, on thegrounds that low-income groups were to be taxed and because the lighter-taxingstates would be the greatest beneficiaries of the post-war credits. The Oppositionsuccessfully moved a motion of no confidence in the budget and it was defeatedin House of Representatives on 3 October 1941 when two independent membersof the parliament crossed the floor and voted with Labor to defeat the budget.

40 NAA LFG to AWF n/d but March 1941, CP 13/1, C File LXV.41 NAA LFG 28 May 1941, ‘Restriction of public expenditure. The immediate problem’, CP

184/5/23(2).42 NAA AWF to RGM, July 1941, 571/1/41/2868.43 It was announced also that 20 per cent of company depreciation funds would be collected as a

compulsory loan.


The government resigned, and a Labor Government took office the same day.Curtin was sworn into office as Prime Minister with Chifley as Treasurer.

The inability to implement a politically acceptable policy of war finance was theprincipal reason for the failure of the Menzies and Fadden Governments. Thedependence of the government on two independent members of the House ofRepresentatives encouraged a degree of timidity in the formulation andapplication of economic policy, and hesitation over the advice of the F&E. Inparticular, the resort to taxation was clearly inadequate, given the extent towhich resources had to be transferred from civilian to war activities in conditionsof full employment. Menzies and Fadden were also unable to convince the statesof the need to transfer some of their taxing powers (particularly in the field ofincome tax) to the Commonwealth; and they took a somewhat pusillanimousattitude toward the credit expansion of the private trading banks. Labor attackedthe Menzies and Fadden Governments unmercifully on the grounds that theirfinancial and economic policies – including the compulsory loan – wereinequitable.

ControlsWith the arrival of the Labor Government a marked shift in economic policybegan, as market-oriented instruments of policy were replaced by direct controls.The new Treasurer, J. B. Chifley, quickly introduced a revised budget (on 29October 1941) to replace the one that had been presented by Fadden: the NationalContribution was jettisoned; heavier taxation was imposed on higher-incomegroups; and taxation was reduced on lower incomes.

With the entry of Japan into the war it was clear that a significant increase intaxation and voluntary borrowing from the public would be required. Shortlyafter the beginning of the war Giblin had predicted an annual war expenditureof about £100m in current prices, with ‘the possibility but not probability of itrising to £200m per annum (still at present prices) at a later period of the war.’But after Pearl Harbour this was utterly outmoded. Defence spending was, infact, to reach £500m, and absorb not one-fourth of GDP, but about 40 per centof it. Some increases in taxation were introduced, and loan programs of aconsiderably greater scale than hitherto entertained were foreshadowed. Butthese policies failed to match the real resources that were needed to meet thedemands of the armed services and war industries, such as munitions. 44

By the early months of 1942, prices were beginning to accelerate at a rapid rate.As a consequence, on 10 February 1942 Curtin announced a dramatic change ofeconomic policy. A National Economic Plan was to be introduced based on a

44 NAA LFG 26 October 1939, ‘War finance’, 1968/391/139.


powerful set of direct controls, which were to be promulgated under the NationalSecurity (Economic Organisation) Regulations.

The principal elements of the plan were the pegging of wages and profits; privatespending was to be curtailed by direct controls on production, consumptionand trade; price rises were to be reduced by tighter price controls; profit marginswere to be squeezed; and spending by state governments was to be limited bythe introduction of a uniform system of income taxation. The rationing of basicconsumer goods was introduced from the middle of 1942. The administrationof capital issues control similarly underwent a transformation aimed at tighteningnon-essential private investment. Credit creation was also used, on the basis ofLabor’s claims that reserves of labour still existed, but stringent National Security(Wartime Banking Control) Regulations were introduced. These tightenedgovernment control of the private banks and required increases in bank assetsfrom a designated date (August 1941) to be lodged with the Commonwealth Bank‘as special deposits’, both as a means of controlling credit expansion and limitingbank profits.

This system of direct controls marked a decisive shift in the nature of Australianeconomic policy. The war economy henceforth was shaped in large measure bydirect controls and other policies associated with the National Economic Plan.The F&E and the Treasury were now to take back seats as new governmentagencies, such as War Organisation of Industry, the Production Executive andthe Manpower Directorate took the leading roles as providers of policy advice.

Even so, the F&E continued to advise the government on war finance afterOctober 1941. Giblin remained in ‘daily touch’ with Chifley, the Treasurer (Day2001, p. 148), including on the subject of uniform taxation. ‘Luckily I have athoroughly good understanding with Curtin, and also Chifley’, Giblin toldKeynes on Labor’s accession. ‘But they have some very difficult colleagues, andtheir independent “majority” is quite crazy on finance’. 45 Giblin noted withalarm the burgeoning of central bank credit following the introduction of theNational Economic Plan. The F&E – particularly Giblin – warned the governmentthat suppressed inflation was building up for the post-war era, as extensivedirect controls placed a lid on inflationary pressures. But the government’srequirements shifted to the efficient ‘administration’ of the war economy andplanning for post-war reconstruction, and new administrative agencies beganto recruit their own economists. The need for the F&E’s expertise was reduced.Its influence diminished, and it scarcely met after 1942. 46

45 PRO LFG T236/548 5/10/41.46 NAA LFG n/d but mid-1942, ‘Excess spending power: present and future’, 571/1/42/2568 Pt 1.

NAA LGM 31 August 1942, ‘The budget and inflation’, CP 6/2B, File XXV.


‘The ordeal of 42’With the advent of the Labor Government, ‘The time had come, some thought,for ousting [Essington] Lewis’ (Blainey 1971). Instead, it was Brigden who wasousted.

The key figure in this manoeuvre was Norman Makin, now forgotten, but thena senior member of the Labor government. 47 When the ALP formed governmentin 1941, Curtin had offered him the department of Social Services andRepatriation, a backwater position in wartime. Upon Makin’s protest, Curtininstead made him Minister for the Navy, and Minister for Munitions, positionshe held throughout the war.

The new minister quickly felt a painful lack of rapport with the permanent head,J. B. Brigden. Makin was a Methodist preacher. He was emphatic and glib.Brigden was the economist and lawyer. He was ‘subtle’, ‘reticent’ and‘pertinacious’.

Makin has told his side of the story several times. The first occasion came in1961 in his collection of cameo memoirs, Federal Labor leaders:

It was quite evident that the start in the expanded war effort was all toolong delayed … The blame could not be attached to executives orworkmen … Two things were principally responsible for this state ofaffairs, firstly, the hesitation with which policy decisions were madeand, secondly, the unsatisfactory set up in the administration of theMunitions Department by having an Economist as the Head of staff …The Economist was a man of high integrity, and likeable, but totallyunable to administer a Department like that of Munitions. (Makin 1961,p. 114).

On this occasion Brigden is spared identification. He is ‘The Economist’. Andhe is ‘totally unable to administer a department’.

By the time of a 1974 interview of Makin, the Economist has become ProfessorBrigden:

When I came to Munitions, I found that Professor Brigden, an economist,was the head of a department for the manufacturing of munitions andhe knew nothing whatever about any of the procedures … A genial,kindly, a gracious man but totally unfitted for the position of head of aMunitions Department. Even in peacetime, I would never have thoughtof appointing him to that position. So the first thing I’ve got to do is to

47 Norman Makin (1889–1982), MP for the South Australian seat of Hindmarsh since 1919, the

Speaker in the Scullin Labor Government, candidate for ALP leadership, member of the Advisory

War Council.


make a change in the head of the Department of Munitions, if we are toget production, we’ve got to do that because I’m satisfied that the presenthead is bottlenecking all of the things that are requiring to get decisionsupon, and unfortunately delays are taking place that we cannot affordto have at this time, and therefore we’ve got to make a change … and Imust ask for a change in the head of my department. (Makin 1974).

Brigden is now ‘bottlenecking’.

In his posthumously produced Memoirs of 1982 Makin repeats the story, butadds a psychological dimension.

Almost immediately upon examining the set-up of the MunitionsDepartment, I became convinced that a change in the Head of Departmentwas essential. Professor J. B. Brigden was a man of excellent personalqualifications as an Economist, a delightful and pleasing man in his staffrelationships, but totally out of place in a technical department. He was,I feel sure, conscious of this. The second in charge, Mr J. K. Jenson …was one of the brilliant minds of the Department. Professor Brigden knewthis, and was no doubt anxious to counter with extreme caution in alldecisions. This had the effect of creating delays and, at times, indecision… I was therefore determined that a change was essential if a free flowof decision making was to be possible. (Makin 1982, p. 80).

The tale has thickened; a vein of jealousy has been added to Brigden’s incapacity.Brigden wished to thwart the ‘brilliant mind’ of his deputy J.K. Jensen.

Makin’s suggestion of a general incapacity may be dismissed. Essington Lewis,praised by Makin, wrote of Brigden’s role in the Department:

His ripe experience as an administrator was of the greatest value inplacing the new and complex organisation upon a satisfactory basis …I shall always be grateful to him for relieving me of all responsibility forpolitical matters arising out of the Department’s activities, and forshielding me from the minor tribulations inseparable from the PublicService Act. (Quoted in Wilson 1951).

Jensen, too, had explicitly defended Brigden on this score (Ross 1995).

The accusation of ‘bottlenecking’ can also be dismissed. Any lack of momentumcan be traced to political leadership. In 1973 Melville recalled Menzies’ wartimeprime-ministership:

We had a great deal of difficulty in getting decisions from Menzies. Hewould study his brief over a very long time. Whether he studied it, I’mnever sure, but at any rate it remained on his desk for a very long time,and he would discuss the matter in cabinet, and we just didn’t getdecisions. Things went very slowly. (Melville 1973).


In fact, it was Brigden who did some unplugging of bottlenecks created bypolitical vacillation. A case in point was a decision over investment in railwaysto facilitate the transport of military hardware. The overwhelming case in favourof this investment was met with incomprehension and indecision. Melville again:

Finally, Brigden, who was a pretty choleric sort of man, I believe burstin on the meeting of the Defence Council48 and we did finally getapproval.

But if Brigden was neither bottlenecking nor maladministering, why was heeliminated? Political circumstances created a context favourable to it. The LaborParty had campaigned throughout 1941 against the lack of energy in thegovernment’s prosecution of the war. Makin was now minister for munitionswhen munitions were in short supply in the face of a Japanese invasion. He hadto be seen to be doing something. ‘Off with his head!’ But whose head? NotJensen’s. He had Chifley’s backing. Lewis was one obvious target. But Brigdenmade a better scapegoat. Brigden was something of a marked man.

There was also evidently a personal tension. Makin’s posy of compliments –‘high integrity, likeable, genial, kindly gracious, delightful, pleasing’ – appearsto be the bouquet laid sanctimoniously by the assailant on the victim’s graveside.He is more truthful when he noted waspishly later in an interview that, havingremoved Brigden, the two were to cross paths once more, in Washington: ‘I putup again with him when I became Ambassador, you see’.

But how to purge the Department of him? ‘Permanent Heads’ were meant to bepermanent. A suitable means of elimination would be some call of patriotic dutyto another front. At this point Brigden’s old boss Richard Casey, now Ministerto the United States, came unwittingly and serendipitously into service.

Since April 1941 Casey had been imploring the appointment to the Legation inWashington of a ‘first-class economist’, ‘as early as possible’ – ‘a high-gradeprofessional economist with prestige in his profession, to follow along, to argueand dispute’. Menzies took the counsel of Giblin, Copland and Wilson on thismatter, who variously proposed Gerald Firth, John La Nauze and Keith Isles,Roland Wilson’s old classmate and sparring partner. Casey took these names toKeynes, but their lack of seniority left Casey dissatisfied. Giblin then proposedCoombs, ‘who has been a tower of strength at the Treasury since September1939’, but Chifley refused to let him go. Wilson, observed Giblin, ‘has beenbadly over-worked, at a pace that cannot be safely continued’, and thereforeexpressed the hope that his release for Washington was possible. ‘I feel it terribly

48 The membership of the Defence Council generally consists of the Minister for Defence, the

Secretary of the Department of Defence, the Chief of the Defence Force and the three service

chiefs.


important to have the best possible representation in America, if anything is tobe saved from the impending wreck’ (NAA LFG to Casey, 10 October 1941).

But the elimination of Bridgen presented itself as a convenient means to finallymeet Casey’s repeated ‘very persistent’ request for an economist ‘of standingwith wide knowledge of Australia and experience of the business of government’.

The blow was crushing to Brigden, and seemingly unexpected. One of the veryfew surviving personal letters of Brigden conveys his state of mind on the eveof his embarkation for the United States.

Sunday 11.1.42

Dear Leslie 49

Today is a pause before my ship’s delayed departure tomorrow. Howsudden things happen. I really thought that Wilson or someone elsewould go to Washington, but the PM and govt would have no one else.It was a blow of course …

Now and then I’ll speak a small prayer for you and yours, until the ordealof 42 passes. (NAA JBB).

‘He arrived [in Washington]’, Wilson later recalled, a sick and exhausted man’(Wilson 1951).

The full employment approachBrigden’s destination – Washington – reflected the widening of the war.

During the remaining years of the Second World War the four devotedthemselves to trying to shape as best they could the architecture of post-warinternational economic arrangements. In particular, they sought an internationalagreement to promote full-employment in the post-war period.

The immediate occasion of this struggle lay in the seemingly arcane matter ofArticle VII of the ‘Mutual Aid Agreement’. This agreement amounted to acommitment by the United States to assist other allied powers economically. TheUnited States was determined that this aid be conditional on the beneficiarycountry removing discrimination against its imports in the post-war period. Thesubstance of Article VII was the ‘consideration’, whereby Britain pledged itselfto support the elimination of impediments to world trade in return for Americanmilitary aid through the process of Lend-Lease. The Empire Preferences agreedat Ottawa in 1932 appeared to be the most irksome to the Americans. Keyneshad spent many months in the United States during the second half of 1941negotiating with his American counterparts on the conditions that Britain andother allied countries would have to meet in return for Lend-Lease.

49 Leslie Melville? Possibly.


Late in 1941 the Inter-departmental Committee on Economic Relations (the ICER)was established to formulate an Australian response to the American conditions.The F&E economists, under Giblin’s direction, concluded that Australia shouldsupport the American proposals, since the alternative to international economiccooperation – comprehensive restrictions on the international flow of goods,services and capital – would constitute a greater threat to Australia’s post-warprosperity than the non-discriminatory, multilateral approach that wasforeshadowed in Article VII. This was the position adopted by the ICER in itsrecommendations to the government early in 1942.

By the middle of 1942, detailed work had commenced to identify what thesigning of Article VII might mean for Australia. Again, the F&E took theinitiative. And once more it was Giblin who commenced discussion. He preparedrecommendations that were distributed to ministers in August.

The essence of Giblin’s report was a description of the difficulties associatedwith reconciling internal and external balance, when domestic policy wasdirected at maintaining high levels of aggregate demand. At the same timeAustralia was expected to fulfil its commitments in relation to Article VII. Thesecommitments called for the dismantling of the Empire trade preferences and ageneral relaxation in trade, capital and exchange controls. Were Australia toadopt unilaterally a policy of full employment, imports would rise as domesticdemand expanded, and exports would decline as local costs rose and resourcesflowed out of export industries into those catering to domestic demand.Consequently, Australia’s international economic policy should be to promotethe full employment objective amongst the major world powers, above all, theUnited States. If countries such as the United States failed to pursue expansionarydomestic policies, then Australia would have a good case for the adoption ofrestrictive international policies, such as import and exchange controls andexchange rate adjustment, as a means to preserve full employment at home.

Giblin’s report proposed that nations should enter into international agreementscommitting them to full employment. The agreements were to contain specifictargets in relation to employment and unemployment, and penalties (importcontrols, exchange controls, devaluation, and the like) were to be imposed ifthe commitments were not met. Integral to these recommendations was theargument, devised by Firth and taken up by Giblin, Coombs and Melville, thatthe welfare gain arising from free trade was likely to be minor compared withthe benefits that would arise from full employment. More especially, and incontrast to the view adopted by American officials, the report highlighted theclaim that it would be difficult to achieve free trade unless domestic full


employment was maintained (the American view, in contrast, was the exactreverse, that free trade would lead to full employment). 50

Giblin, strongly supported by Melville and Coombs, was responsible forformulating the ‘positive approach’, or the ‘full employment approach’. In alecture he gave in mid-1943, Giblin set out the basis of the ‘positive approach’as follows:

If we could get effective international agreement to keep up employment,we need not fear any external repercussions from ourselves pursuing apolicy of maintaining employment at the highest level. If we cannot getagreement on this point and we maintain employment on a much higherlevel than other countries, then we shall probably be faced with a seriousadverse balance of trade. If we were resolute to maintain employmentand refuse deflation, we should have to cut down imports, either bydirect restriction of imports, or indirectly by depreciations of thecurrency. Either way would be bad for us, and would tend to lower ourstandards of living. Besides, either way would invite retaliation fromother countries and lead to a cumulative reduction in world trade, suchas we got in the 1930s. (Giblin 1943, p. 20).

The ‘positive approach’ was clearly aimed at the United States, the most powerfuleconomy in the world. If Australia could induce the Americans to maintain fullemployment in their domestic economy, there might be a good chance of avoidingan economic crisis of the kind experienced in the early 1930s. In his Report oneconomic conditions in the United Kingdom, United States and Canada to thegovernment following his visit to these countries in 1944–45, Copland emphasisedthis point, declaring that the:

… most significant influence determining general world economicprosperity will be the economic policy pursued by the United States. Ifthat policy is one of high employment and increasing internationalinvestment, the total demand by the United States … will provide a basisfor an expanding world economy and a general increase in the volumeof international trade. (Copland 1945, p. 6).

Australian delegates to all of the major international conferences from 1943onwards sought to have commitments to full employment inserted in internationalagreements. 51

50 NAA LFG 19 January 1943, ‘Report on Australia’s position in relation to article VII’, CP 13/1/ii,

File LXXX111.51 The Food and Agriculture Conference at Hot Springs, Virginia, in May–June 1943, the International

Labour Organisation Conference at Philadelphia in April 1944, the International Economic and

Monetary Conference at Bretton Woods, New Hampshire in July 1944, the United Nations Conference


Roland Wilson had attended, as the sole Australian representative, the firstinternational conference called to discuss post-war economic planning. 52 Thiswas a conference of officials from the British Commonwealth and India held inLondon in October and November 1942. Wilson was expressly instructed byCurtin and Chifley not to raise the ‘positive approach’, on the grounds that ithad not yet been approved by ministers. But it is possible that he raised the fullemployment approach unofficially with Keynes, who had taken him to Cambridgeduring the conference for a ceremony at the Marshall Library to mark thecentenary of Alfred Marshall’s birth. Giblin had briefed Keynes on Wilson: hewas ‘the man who has the most complete confidence of Chifley and Curtin’ (KCLALFG 3 October 1942). 53 He added: ‘Wilson, I should say, on first contact isinwardly nervous, and apt to be frivolous or flippant, defensively’. Keynes wasto write later to Giblin in glowing terms about Wilson’s performance at theconference, saying that he ‘took a prominent, indeed a leading part through allthe discussions and played a major role in them with the greatest success. Wehad a great gathering of Whitehall officials, who came to feel the greatest respectfor both his wisdom and for his pertinacity’ (quoted in Cornish 2002, p. 24).

Wilson was fortunate to survive the return journey. ‘Dr Wilson spent some timesitting on a reef off the coast of Fiji, clutching his dispatch case and hisdocuments’. One engine of his plane ‘had caught fire and the aircraft had landedrather hazardously in shallow water on the reef, where the offending engineimmediately dropped off’ (Hasluck 1954, p. 144).

He eventually arrived in Sydney feeling sceptical about the possibility of theUnited States endorsing an international treaty that would tie its hands in relationto domestic economic policy. He considered, correctly as it turned out, that itwas most unlikely that the United States would ever agree to surrender itssovereignty in this way. Even if the United States Government were persuadedto do so, he doubted that any agreement of this nature would be ratified by theUnited States Senate. Wilson reported to the F&E that, while the Atlantic Charterand Article VII entailed general commitments to expansionary economic policiesafter the war, he very much doubted that the United States would sign anagreement that bound itself to particular domestic policies. Giblin, Melville andCoombs were more optimistic. 54

at San Francisco in April–June 1945, and the various international trade conferences, leading up to

the Havana Conference held between November 1947 and April 1948.52 Giblin: ‘I have been pressing that Wilson be sent as he is in every way our best representative

and I am very pleased it has come off’ (KCLA LFG 3 October 1942 KCL/A).53 KC LA/56.54 NAA RW, ‘Post-war economic talks, London, October–November 1942’, A989/43/735/56/1.


The first international arena in which the ‘positive approach’ was aired was theFood and Agricultural Conference at Hot Springs in June 1943 (Hasluck 1980,p. 9). This conference was a somewhat Wavian affair. Its provenance wasmysterious, and seemingly lay in the fact that President Roosevelt ‘was anxiousto have a conference although he found it hard to know what to have a conferenceabout’ (Brigden 1948). The topic of food was chosen as suitably uncontroversial.600 delegates duly arrived at Hot Springs, ‘a luxurious spa on the border ofWest Virginia’, and were surrounded by 200 military police. The Ethiopiandelegate came bearing three boxes of gold. Iraq was represented by a ‘judge’from Utah.

The Australian delegates were Brigden and Coombs. (‘No delegate excelledCoombs in exposition of the practical’, Brigden reported). The peg on which tohang their advocacy of the full-employment approach centred on discussionsover the future International Monetary Fund (IMF). Brigden pushed theAustralian position that a pledge to maintain full employment be incorporatedinto the Fund’s articles.

The proposal is for a kind of watch dog, to protect us all. The Fund isthe dog. But we are not sure that the dog … may not bite the children.You [the US] know that the dog won’t bite us, but does the dog know… we ask that the full employment criterion be stated.

But the climax of the ‘full employment approach’ came not with the creation ofthe IMF at Bretton Woods but with the establishment of the United Nations atSan Francisco. In long-running infighting at San Francisco in 1945 the delegatesfinally agreed to insert a ‘pledge’ to ‘joint action’ to achieve ‘full-employment’into the UN’s Charter. In repeated sub-committee sorties Wilson and Brigdenmaintained the drive for the inclusion of the full-employment pledge in the faceof the rearguard action by the United States delegation.

That both Wilson and Brigden were at San Francisco arose from the fact that theAustralian delegation was a ‘freak show of a calf with two heads’ (Hasluck 1980,p. 191). It had two principals: the Deputy Prime Minister, Frank Forde, and theExternal Affairs Minister, H. V. Evatt. Evatt took a collection ofnegotiators/advisors from his Department, including Brigden. Forde declared toCurtin that he needed ‘a first class brain’ at San Francisco, and Wilson wassupplied (Hasluck 1980, p. 153). The double-headed delegation stayed at the SirFrancis Drake Hotel: Forde’s half on the 10th floor and Evatt’s on the 17th.(Hasluck 1980, p. 153). They were there for the next 10 weeks, working 80 hoursa week.

Before the conference, Chifley as Treasurer had briefed Wilson to be ‘in nodoubt’ of the importance of ‘full employment’ in the Charter. In San Francisco,Brigden ‘backed Wilson strongly’ on this (Crisp 1965, p. 8). Brigden argued that


‘the time and circumstances were ripe to push the full-employment approachforward’. Roosevelt’s Fourth Inaugural Addresshad promoted full employment,and he (Brigden) ‘felt that three years of Australian propaganda in conferenceafter conference had not been without effect’ (Crisp 1965, p. 8).

Wilson proposed the Australian delegation present the drafting committee thesewords:

PLEDGE:

Each member of the United Nations pledges itself to take, singly and inconcert with other members, such measures as may be necessary andpracticable to secure for its own people and the people of other lands –

(a) economic advancement and improved living standards

(b) useful employment or work for all who seek it, at fair wages or returnsunder conditions which will satisfy the conscience of mankind

(c) social security

(d) the maintenance of an expanding world economy free from disturbingfluctuations. (Crisp 1965, pp. 8–9).

Evatt took Wilson’s carefully worded draft and reduced it to a more speech-likephraseology:

All members of the United Nations pledge themselves to take action bothnational and international for the purpose of securing for all people,including their own, improved labour standards, economic advancement,social security and employment for all who seek it. (Crisp 1965, p. 10).

Peculiar, unstable, and partly crazed, Evatt was sometimes liked, sometimeshated. But ‘Wilson himself was better equipped to handle a difficult ministerthan any minister was equipped to handle him. Wilson was quietly the master’(Hasluck 1980, p. 193). He was indeed ‘the one public servant that could not bestared down by Evatt’ (Hudson 1993, p. 128). Wilson redrafted Evatt’s phrasingas: ‘All members pledge themselves to take separate and joint action and tocooperate with the organisation, and with each other, to achieve these purposes’(Crisp 1965, p. 14).

But these evolutions deliberately let pass the sticking point - the word ‘pledge’.This word seemed to irk the US delegation. Perhaps its aversion was rooted inthe fact that ‘pledge’ - unlike ‘to undertake’ (that is, ‘to take upon oneself’) -can be synonymous with ‘vow’ and ‘oath’.


Figure 9.2. Wilson at the time of the United Nations San Francisco conference


Whatever the case, the dispute was not treated casually. John Foster Dulleswarned Wilson that to insist on a pledge would wreck the charter (Crisp 1965,p. 16). Dulles appeared with Nelson Rockerfeller, the Assistant Secretary of Statefor Latin America, and gave ‘two speeches with overtones and even explicitstatements highly offensive to Australia and not all strictly true. His mannerand much of the substance of his speech were overbearing and even offensivein his overweening assertions of American superiority in wisdom and virtue …Wilson maintained perfect control of himself and in a cold, factual comment,once again insisted that the American proposal meant changes of substance’.This same witness recalled that one of his ‘most vivid conference memories isof the swollen, pulsing veins on Roland Wilson’s neck and temple as he stroveto maintain composure during Dulles’ intemperate outburst’(Crisp 1965, p. 16).

Dulles had the relevant committee reverse its earlier approval of Wilson’s draft.Wilson refused to recognise the legitimacy of this procedure. Ultimately, it wasWilson’s doggedness that triumphed over Dulles’ bluster. The relevant articlefinally appeared in the Charter barely different from the one Wilson had draftedon May 22, and with the word ‘pledge’ intact.

Article 55

[…] the Organisation shall promote: (a) higher standards of living, fullemployment, and conditions of economic and social progress […]

Article 56

All members pledge themselves to take separate and joint action incooperation with the Organisation, to achieve these purposes set forthin Article 55. (Crisp 1965, p. 18).

The ‘pertinacity’ of Wilson that Keynes had noted in London in 1942 had beendiscovered by Dulles in 1945. 55

55 Evatt claimed Article 56 as his triumph. Curiously enough, so did the American delegate, Deane

Gildersleeve (Crisp 1965, p. 18).


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